With demand for higher capacity contents from general subscribers continuously on the rise, this inter-market dependency, which is the main characteristic of the 2-sided market model, will become much stronger as we develop into the Ultrabroadband (UBB) era, defined as 1Gbps or more of subscriber capacity.
The objective of this article is to better understand and develop strategies for ISP competition in the UBB era using the 2-sided market model.
A 2-sided market is best described by market demands on both sides of the firm being influenced by each other.
In order to gain some insight into 2-sided market properties, we present some results from PARKER & VAN ALSTYNE (2005) without proof.
The 2-sided market properties become much more complex when faced with competitive strategies for firms.
We can express the 2-sided market demand as follows:
Consider Firms 1 and 2 competing for the 2-sided market.
But how would independent pricing by two separate firms each dealing exclusively with a single market on opposite sides (hereto after referred to as "split markets") compare to the 2-sided market duopoly discussed in section III in terms of profit?
In any case, both markets will have to be served by nature of the 2-sided market, and from a noncooperative equilibrium perspective, the Cournot-Nash strategy would be the only stable solution since neither firm would want to miss the opportunity provided by either of the markets.
We have derived a duopoly Cournot-Nash equilibrium under the 2-sided market environment, made an analysis of the "split markets" situation in comparison to the monopoly regime on one hand and Cournot-Nash on the other, and finally suggested strategies for competing firms.
Present and future results from the 2-sided market model should not only be well understood by platform firms in forming optimal business strategies, but also by policy makers and regulatory bodies since seemingly straightforward initiatives can often run counterproductive under this new and rather complex setting.